Enforcement of China's Anti-Monopoly Law

Provisions on Procedures for Investigating and Handling Cases of Monopolistic Agreements and Abuses of Dominant Market Position

Provisions on Procedures for Prohibiting the Elimination and Restriction of Competition via Abuses of Administrative Power

With passage of these two sets of provisions, the State Administration of Industry and Commerce (SAIC) moves closer to fully enforcing its portion of China's Anti-Monopoly Law (AML), which was passed by the Standing Committee of the National People's Congress in August 2007 and took effect on August 1, 2008. The SAIC shares responsibility for enforcement of the AML with the Ministry of Commerce (MOFCOM) and National Development and Reform Commission (NDRC). (For a full summary of the AML, see the October 2007 issue of China Law Update.)

The SAIC is responsible for the enforcement of rules involving 1) monopoly agreements; 2) the abuse by companies of a dominant market position; and 3) the abuse of administrative powers by agencies or public organizations. The NDRC is charged with enforcing rules related to price-fixing, while MOFCOM handles mergers. China Law Update has previously summarized rules and regulations enacted by MOFCOM to implement the AML, such as the Regulations on Notification of a Concentration of Undertakings (September 2008 issue), as well as influential merger control cases, such as MOFCOM's rejection of Coco-Cola's proposed acquisition of Huiyuan Juice (April 2009) and MOFCOM's approval (with conditions) of Mitsubishi Ray's acquisition of Lucite International (June 2009).

The SAIC initially issued these AML-related provisions—the agency's first—in April, as the Draft Provisions for Prohibiting Monopoly Agreements and the Draft Provisions for Prohibiting Abuse of Dominant Market Position. (See China Law Update, May 2009.) Replacing those two drafts, the Provisions on Procedures for Investigating and Handling Cases of Monopolistic Agreements and Abuses of Dominant Market Position (Monopolistic Agreement and Market Dominance Provisions) were finally promulgated by the SAIC on May 26, 2009. The agency also issued new regulations—the Provisions on Procedures for Prohibiting the Elimination and Restriction of Competition via Abuses of Administrative Power (Administrative Monopoly Provisions) on the same day. It is expected that these new rules, which took effect on July 1, 2009, will mark the start of active AML enforcement by the State Administration of Industry and Commerce. The SAIC has not yet taken any formal or public actions under the AML, despite reports and rumors of numerous complaints—some say as many as 1000—about "monopolistic" or "anticompetitive" behavior.

The lack of enabling regulations, as well as SAIC's inexperience with enforcing antitrust rules, have generally been blamed for the agency's relatively slow response to the Anti-Monopoly Law (especially when compared to MOFCOM's rulemaking and action).

Monopolistic Agreement and Market Dominance Provisions

The Monopolistic Agreement and Market Dominance Provisions provide a comprehensive overview of how the SAIC and its provincial counterparts will handle cases involving allegations of monopolistic agreements and abuses of dominant market position.

Regulatory Authority and the Delegation of Powers

Under the new guidelines, the SAIC is generally responsible for investigating complaints with a nationwide impact. The agency may, at its discretion, give authority to provincial AIC branches to investigate monopolistic behavior that occurs completely or primarily within the provincial AIC's jurisdiction. (In contrast to an earlier draft of the rules, which gave straightforward authorization to provincial counterparts, the Monopolistic Agreement and Market Dominance Provisions grant power only in certain circumstances, and always with the approval and under the supervision of the SAIC.)

The SAIC will decide whether to delegate authority on a case-by-case basis. Provincial AIC branches are prohibited from delegating authority to investigate allegations of monopolistic behavior to lower-level AIC branches. While provincial AICs are authorized to make decisions based on their investigations, they must first report those decisions to the central SAIC for approval.

This centralized structure will, at least in theory, allow for greater consistency nationwide in enforcement of the Anti-Monopoly Law. Whether that happens in practice will depend to a large extent on whether the SAIC has the resources and personnel to properly investigate allegations and enforce the law.

Reporting of Allegations/Initiation of Investigations

Since monopolistic behavior is often by its very nature secretive, the SAIC is expected, in most if not all cases, to rely on the reporting of allegations by outsiders, presumably business competitors and others who believe they have been harmed. The Monopolistic Agreement and Market Dominance Provisions require reporters of suspected violations to complain in writing, with details about the reporter, the suspected violator, and relevant facts as well as evidence. Those accused of wrongdoing have the right to respond to allegations. The Monopolistic Agreement and Market Dominance Provisions do not make clear what standard of proof the reporter must meet in order for the SAIC to launch a full investigation.

While the identity of reporters is supposed to remain confidential, some critics suggest that these reporting requirements will in some cases be a disincentive to reporting alleged violations, particularly when those allegations involve large, powerful companies—the very type of company that seems most likely to engage in monopolistic behavior.

Investigation Methods and Powers

The Monopolistic Agreement and Market Dominance Provisions provide the SAIC and its provincial counterparts with broad powers to investigate suspected anticompetitive behavior. Permitted measures include:

• conducting physical searches of businesses and related sites;
• making inquiries to business operators and related individuals or businesses, requiring them to respond and/or explain;
• reviewing and copying numerous types of documents, in both physical and electronic form;
• seizing and holding evidence; and
• reviewing bank accounts and other financial records.

Suspension of an Investigation

Once the SAIC has begun an investigation, a suspected violator may apply for suspension of an investigation, provided that it agrees to adopt measures to eliminate the negative effects of the alleged violation. If the SAIC agrees to suspend an investigation, the business operator will be under SAIC supervision (or, if authority is delegated, supervision by a provincial AIC branch) to make sure the business operator fulfills its obligations under the suspension agreement.

The SAIC or its provincial counterparts may later revive the investigation if a suspected violator fails to keep its promises, if facts supporting the case change significantly, or if the decision to suspend the investigation is later determined to have been granted based on incomplete, inaccurate or misleading information.

Unanswered Questions

Even though nearly a full year has passed since China's Anti-Monopoly Law took effect, the Monopolistic Agreement and Market Dominance Provisions still leave some important questions unanswered. The provisions do not, for example, make clear what evidentiary standard a reporter must meet in order for the SAIC or its provincial counterparts to launch a full investigation of alleged monopolistic behavior. Similarly, while the provisions say officials "are under a duty of confidentiality for commercial secrets they discover during enforcement" and subject to penalties for violating that duty, the rules give no indication of what should be considered a commercial secret, nor whether parties harmed by disclosure of a secret can be compensated.

The SAIC is expected to issue more detailed and substantive rules. Both MOFCOM and the NDRC, too, are likewise preparing supplementary rules to assist with enforcement of their portion of the Anti-Monopoly Law.

Administrative Monopoly Provisions

China's Anti-Monopoly Law prohibits administrative authorities and public organizations from abusing administrative powers and engaging in conduct such as exclusive dealing and placing restrictions on businesses from other regions. The AML also includes a general prohibition on the blocking of trans-regional free trade. The AML delegates authority for enforcing these aspects of the law to the State Administration of Industry and Commerce.

The Administrative Monopoly Provisions are thus intended to address monopolies that result from the actions or decisions of administrative authorities or organizations, and that are authorized by laws and regulations. According to these provisions, however, neither the SAIC nor its provincial counterparts has the power to regulate and punish a violating administrative authority or organization; instead, the SAIC or provincial AIC only has the power to refer the complaint for review to the administrative authority that is in charge of the violating authority (which may in some cases be the State Council). The higher administrative authority can, according to law, order a correction of the misconduct and punish the responsible persons.

The Administrative Monopoly Provisions contain almost no other substantive information about how the SAIC and its provincial counterparts are supposed to uncover abuse-of-power cases, what standards must be met in order to open a case, or whether it is mandatory for the higher-level administrative authority to accept the SAIC's findings of abuse of administrative authority or recommendation for action. Thus, like the Monopolistic Agreement and Market Dominance Provisions, the Administrative Monopoly Provisions leave important questions unanswered.